Basics Of GST
The Goods and Services Tax (GST) was implemented on July 1st, 2017. With its implementation the door has been shut on most of the indirect taxes such as excise duty, VAT, service tax, central sales tax, entertainment taxes and a host of other taxes. As you may have already heard this is the possibly the biggest tax reform in India in recent times and will continue to stalk headlines for a long time to come.
If you are running a business, it is likely that GST has already impacted your life in some way, but even as a layman knowing some GST basics is worthwhile, so you can be a part of this big change India is undergoing.
Who should register for GST?
Simply put, if you do business, make sure you’ve considered registering for GST. Any person who does business in India with a turnover in excess of Rs 20 lakhs per annum must register for GST. This is the basic rule. However, in some cases registration is compulsory and the Rs 20 lakhs threshold does not apply. Those are –
- Businesses who sell goods or services inter-state
- Agents of a business
- An e-commerce
- A couple of other such as head offices who take services on behalf of branches and later distribute it to them (called input service distributors) and those who pay tax on reverse charge basis (we’ll understand it a bit more later). Here is a complete list of taxable persons under GST.
If you are a service provider, you do not have to register for GST if your receipts are within the Rs 20 lakhs threshold even though you supply inter-state. This was announced in the GST council meeting held on 6th October 2017. Do note that this option is not available to sellers of goods, who must register irrespective of turnover if they sell inter-state.
What is a GSTIN?
GSTIN refers to the unique GST identification number that every business will be allotted. Every taxpayer will be allotted a state-wise, PAN-based 15-digit Goods and Services Taxpayer Identification Number (GSTIN). Also, note that having PAN is mandatory to register under GST.
What is input credit?
If you are registered under GST, you invoice your goods or services with GST. Say if you are providing a service or selling a good covered under GST, your invoice charges Rs 1lakh + Rs 18,000 (assuming GST rate 8%) for a good/service that is sold at Rs 1 lakh. Whatever GST you collect on your sales has to be deposited with the government. Now to be able to supply this good or service of Rs 1lakhs, it is likely you made certain purchases for your business. GST law allows you to set off the GST taxes you’ve paid on purchase from the Rs 18,000 you have to deposit. Say your raw materials costed Rs 50,000 (GST Rs 2,500), services used on the raw materials Rs 20,000 (GST Rs 3,600). You can reduce the taxes paid by you on the purchases from your output tax liability. So therefore, you will deposit to the government Rs 18,000 – Rs 2,500 – Rs 3,600 = Rs 11,900 to the government. This way every dealer in the chain will deposit GST and keep on claiming credit of taxes paid by them on business purchases. This mechanism is called input tax credit (ITC).
What is Reverse Charge?
Usually when the supplier supplies goods, the onus is on the supplier to pay the taxes charged. However, in certain cases, the tax is borne by the buyer of the goods. This is called a reverse charge as the charge of tax is reversed. This happens in case of certain notified goods and services, such as services of a lawyer, author, insurance agent, recovery agent, where the buyer of these services has to pay tax on service received. Similarly, in case of certain goods such as unpeeled cashew, tobacco etc bought from an agriculturist, tax has to be paid on reverse charge. This reverse charge has been implemented to ease the burden of compliance on some businesses. If you are taking any of these services or goods (notified under section 9(3) of the CGST Act), then you must pay tax on reverse charge basis. As well as mandatorily register.
Similarly, when a registered person purchases goods and services from an unregistered person, then the buyer has to pay GST on reverse charge basis. However, this aspect of service charge, for goods and services bought from an unregistered person has been put on hold until 31.03.2018 by the GST council in its meeting held on 6th October 2017. Learn all about reverse charge in detail here.
Filing GST Returns
Any tax law requires that registrants must file a tax return. These returns are the basis on which businesses deposit taxes to the government. The 3 basic returns under GST are GSTR-1. GSTR-2 and GSTR-3. And then an annual return called GSTR-9. A regular taxpayer will file these returns monthly for each GSTIN. The GST Council recently allowed businesses with turnover of less than Rs 1.5cr to file quarterly return starting the October quarter. Filing a GST return is critical to comply with this GST law. Make sure you are adhering to the timelines and due dates of this tax return, so you don’t end up paying penalty for delays.